Reforms to Capacity Market to improve energy security for families and businesses

1 Mar 2016 03:35 PM

Today a series of changes have been set out that will guarantee our long-term energy security. These changes will tackle the legacy of underinvestment and deliver an energy infrastructure fit for the 21st century, the Energy Secretary Amber Rudd has announced.

Following a detailed review, a package of reforms to the Capacity Market has been unveiled. They will improve the system used to secure reliable sources of electricity capacity, tackle decades of underinvestment and safeguard the future security of our energy supply for generations to come.

The reforms set out plans to buy more electricity capacity and buy it earlier – encouraging more investment in our energy system. This will mean new energy infrastructure can be built, in particular new gas fired power stations, safeguarding our energy supply so we can better protect families and businesses from avoidable spikes in energy costs.

In the shorter term, the start of the Capacity Market will be brought forward one year to help give both consumers and the energy industry greater peace of mind for the coming winters. Tougher action will also be taken on companies which go back on their Capacity Market contracts, locking industry in to the deals they commit to.

Energy and Climate Change Secretary Amber Rudd said:

“Ensuring that our families and businesses have secure energy supplies they can rely on now and in the future is not negotiable and I’ll take no risks with this.

“The Capacity Market has driven down costs and secured energy at the lowest possible price for bill-payers, but I’m taking further action to tackle the legacy of under-investment and ensure our country’s long-term energy security. By buying more capacity earlier we will protect consumers and businesses from avoidable spikes in energy costs.

“We’re also sending a clear signal to investors that will encourage the secure and clean energy sources we need to come forward – such as gas and interconnectors – as part of our long-term plan to build a system of energy infrastructure fit for the 21st century”.

Working closely with DEFRA and Ofgem we will look at what further action can be taken on diesel – removing any incentives that other energy types do not enjoy.

Notes to Editors

• As set out in November 2015, the Government has been reviewing the Capacity Market, and had also consulted on regulatory changes. To improve energy margins, get the investment needed in our energy infrastructure and encourage new plant, including new gas, it was concluded that more capacity should be procured. The exact amount will be determined in due course and procured each year on the basis of a recommendation from National Grid.

• We have today launched a new consultation that will look at bringing forward the Capacity Market by one year. Under these plans an early Capacity Auction would take place in January 2017 for delivery in winter 2017/18. The consultation also includes details on tougher penalties for companies that fail to deliver their Capacity Market contracts. This consultation will close on 1 April 2016

• We also consulted in October 2015 on further improving the Capacity Market and strengthening the assurance regime to ensure security of supply. Government response to the October 2015 consultation.

• Whilst the Capacity Market remains technology neutral to ensure it secures the best price for bill-payers, we are working closely with DEFRA and Ofgem at what further action can be taken on diesel. We are pleased that Ofgem is reviewing the “embedded benefits” available to diesel to ensure that excessive compensation from other sources does not distort the market. DEFRA will consult later this year on options which will include regulation of relevant air pollutants from diesel engines.

• For further information and media enquiries please contact Edwina Iddles in the DECC Media Team on 0300 068 6005.